McConnell Brue Flynn economics Economics PRINCIPLES, PROBLEMS, AND POLICIES THE MCGRAW-HILL SERIES: ECONOMICS ESSENTIALS OF ECONOMICS Brue, McConnell, and Flynn Essentials of Economics Third Edition Mandel M: Economics, The Basics Third Edition Schiller and Gebhardt Essentials of Economics Tenth Edition PRINCIPLES OF ECONOMICS Asarta and Butters Connect Master: Economics First Edition Colander Economics, Microeconomics, and Macroeconomics Tenth Edition Frank, Bernanke, Antonovics, and Heffetz Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics Sixth Edition Frank, Bernanke, Antonovics, and Heffetz Streamlined Editions: Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics Third Edition Karlan and Morduch Economics, Microeconomics, and Macroeconomics Second Edition McConnell, Brue, and Flynn Economics, Microeconomics, and Macroeconomics Twenty-First Edition ECONOMICS OF SOCIAL ISSUES Guell Issues in Economics Today Seventh Edition Register and Grimes Economics of Social Issues Twenty-First Edition ECONOMETRICS Gujarati and Porter Basic Econometrics Fifth Edition Hilmer and Hilmer Practical Econometrics First Edition MANAGERIAL ECONOMICS Baye and Prince Managerial Economics and Business Strategy Ninth Edition Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Sixth Edition Cecchetti and Schoenholtz Money, Banking, and Financial Markets Fifth Edition URBAN ECONOMICS O’Sullivan Urban Economics Eighth Edition LABOR ECONOMICS Borjas Labor Economics Seventh Edition McConnell, Brue, and Macpherson Contemporary Labor Economics Eleventh Edition PUBLIC FINANCE Rosen and Gayer Public Finance Tenth Edition ENVIRONMENTAL ECONOMICS Thomas and Maurice Managerial Economics Twelfth Edition Field and Field Environmental Economics: An Introduction Seventh Edition INTERMEDIATE ECONOMICS INTERNATIONAL ECONOMICS Bernheim and Whinston Microeconomics Second Edition Dornbusch, Fischer, and Startz Macroeconomics Twelfth Edition Samuelson and Nordhaus Economics, Microeconomics, and Macroeconomics Nineteenth Edition Frank Microeconomics and Behavior Ninth Edition Schiller and Gebhardt The Economy Today, The Micro Economy Today, and The Macro Economy Today Fourteenth Edition ADVANCED ECONOMICS Slavin Economics, Microeconomics, and Macroeconomics Eleventh Edition MONEY AND BANKING Romer Advanced Macroeconomics Fourth Edition Appleyard and Field International Economics Ninth Edition Pugel International Economics Sixteenth Edition THE FOUR VERSIONS OF MCCONNELL, BRUE, FLYNN Chapter* Economics Microeconomics Macroeconomics Essentials of Economics Limits, Alternatives, and Choices x x x x The Market System and the Circular Flow x x x x Demand, Supply, and Market Equilibrium x x x x Market Failures: Public Goods and Externalities x x x x Government’s Role and Government Failure x x x x Elasticity x x x Utility Maximization x x Behavioral Economics x x Businesses and the Costs of Production x x x 10 Pure Competition in the Short Run x x x 11 Pure Competition in the Long Run x x x 12 Pure Monopoly x x x 13 Monopolistic Competition x x x 14 Oligopoly and Strategic Behavior x x 15 Technology, R&D, and Efficiency (Web Chapter) x x 16 The Demand for Resources x x 17 Wage Determination x x x 18 Rent, Interest, and Profit x x 19 Natural Resource and Energy Economics x x 20 Public Finance: Expenditures and Taxes x x 21 Antitrust Policy and Regulation x x 22 Agriculture: Economics and Policy x x 23 Income Inequality, Poverty, and Discrimination x x x 24 Health Care x x 25 Immigration x x 26 An Introduction to Macroeconomics x x 27 Measuring Domestic Output and National Income x x x 28 Economic Growth x x x 29 Business Cycles, Unemployment, and Inflation x x x 30 Basic Macroeconomic Relationships x x 31 The Aggregate Expenditures Model x x 32 Aggregate Demand and Aggregate Supply x x x 33 Fiscal Policy, Deficits, and Debt x x x 34 Money, Banking, and Financial Institutions x x x 35 Money Creation x x 36 Interest Rates and Monetary Policy x x x 37 Financial Economics x x 38 Extending the Analysis of Aggregate Supply x x 39 Current Issues in Macro Theory and Policy x x 40 International Trade x x x x 41 The Balance of Payments, Exchange Rates, and Trade Deficits x x x x 42 The Economics of Developing Countries x x x *Chapter numbers refer to Economics: Principles, Problems, and Policies A red “X” indicates chapters that combine or consolidate content from two or more Economics chapters x Twenty-First Edition Economics PRINCIPLES, PROBLEMS, AND POLICIES Campbell R McConnell University of Nebraska Stanley L Brue Pacific Lutheran University Sean M Flynn Scripps College ECONOMICS: PRINCIPLES, PROBLEMS, AND POLICIES, TWENTY-FIRST EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2015, 2012, and 2009 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper LWI 21 20 19 18 17 16 ISBN MHID ISBN MHID 978-1-259-72322-3 (student edition) 1-259-72322-4 (student edition) 978-1-259-91560-4 (instructor’s edition) 1-259-91560-3 (instructor’s edition) Chief Product Officer, SVP Products & Markets: G Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Betsy Whalen Managing Director: Susan Gouijnstook Senior Brand Manager: Katie Hoenicke Director, Product Development: Rose Koos Product Developer: Adam Huenecke Senior Director, Digital Content Development: Douglas Ruby Marketing Manager: Virgil Lloyd Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Harvey Yep (Core); Bruce Gin (Assessment) Buyer: Laura Fuller Design: Tara McDermott Cover Image: © Getty Images/Kativ Content Licensing Specialists: Shawntel Schmitt (Image); Beth Thole (Text) Typeface: Stix Mathjax MAIN 10/12 Compositor: Aptara®, Inc Printer: LSC Communications All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: McConnell, Campbell R., author | Brue, Stanley L., 1945- author | Flynn, Sean Masaki, author Title: Economics : principles, problems, and policies / Campbell R McConnell, University of Nebraska, Stanley L Brue, Pacific Lutheran University, Sean M Flynn, Scripps College Description: 21 Edition | Dubuque : McGraw-Hill Education, [2018] | Revised edition of the authors’ Economics, 2015 Identifiers: LCCN 2016043780| ISBN 9781259723223 (alk paper) | ISBN 1259723224 (alk paper) Subjects: LCSH: Economics Classification: LCC HB171.5 M47 2018 | DDC 330 dc23 LC record available at https://lccn.loc.gov/2016043780 2013038889 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered To Mem and to Terri and Craig, and to past instructors ABOUT THE AUTHORS CAMPBELL R MCCONNELL earned his Ph.D from the University of Iowa after receiving degrees from Cornell College and the University of Illinois He taught at the University of Nebraska–Lincoln from 1953 until his retirement in 1990 He is also coauthor of Contemporary Labor Economics, eleventh edition, and Essentials of Economics, third edition, and has edited readers for the principles and labor economics courses He is a recipient of both the University of Nebraska Distinguished Teaching Award and the James A Lake Academic Freedom Award and is past president of the Midwest Economics Association Professor McConnell was awarded an honorary Doctor of Laws degree from Cornell College in 1973 and received its Distinguished Achievement Award in 1994 His primary areas of interest are labor economics and economic education He has an extensive collection of jazz recordings and enjoys reading jazz history STANLEY L BRUE did his undergraduate work at Augustana College (South Dakota) and received its Distinguished Achievement Award in 1991 He received his Ph.D from the University of Nebraska–Lincoln He is retired from a long career at Pacific Lutheran University, where he was honored as a recipient of the Burlington Northern Faculty Achievement Award Professor Brue has also received the national Leavey Award for excellence in economic education He has served as national president and chair of the Board of Trustees of Omicron Delta Epsilon International Economics Honorary He is coauthor of Economic Scenes, fifth edition (Prentice-Hall); Contemporary Labor Economics, eleventh edition; Essentials of Economics, third edition; and The Evolution of Economic Thought, eighth edition (Cengage Learning) For relaxation, he enjoys international travel, attending sporting events, and going on fishing trips SEAN M FLYNN did his undergraduate work at the University of Southern California before completing his Ph.D at U.C Berkeley, where he served as the Head Graduate Student Instructor for the Department of Economics after receiving the Outstanding Graduate Student Instructor Award He teaches at Scripps College (of the Claremont Colleges) and is the author of Economics for Dummies, second edition (Wiley), and coauthor of Essentials of Economics, third edition His research interests include finance, behavioral economics, and health economics An accomplished martial artist, he has represented the United States in international aikido tournaments and is the author of Understanding Shodokan Aikido (Shodokan Press) Other hobbies include running, traveling, and enjoying ethnic food viii KEY GRAPHS 1.2 The Production Possibilities Curve 11 2.2 The Circular Flow Diagram 38 3.6 Equilibrium Price and Quantity 57 7.1 Total and Marginal Utility 141 9.2 The Law of Diminishing Returns 186 9.5 The Relationship of the Marginal-Cost Curve to the Average-Total-Cost and Average-Variable-Cost Curves 190 9.8 The Long-Run Average-Total-Cost Curve: Unlimited Number of Plant Sizes 193 10.3 Short-Run Profit Maximization for a Purely Competitive Firm 209 10.6 The P = MC Rule and the Competitive Firm’s Short-Run Supply Curve 212 11.6 Long-Run Equilibrium: A Competitive Firm and Market 226 12.4 Profit Maximization by a Pure Monopolist 241 13.1 A Monopolistically Competitive Firm: Short Run and Long Run 260 14.2 The Kinked-Demand Curve 273 17.3 Labor Supply and Labor Demand in (a) a Purely Competitive Labor Market and (b) a Single Competitive Firm 333 30.2 Consumption and Saving Schedules 597 30.5 The Investment Demand Curve 604 31.2 Equilibrium GDP in a Private Closed Economy 619 31.7 Recessionary and Inflationary Expenditure Gaps 629 32.7 The Equilibrium Price Level and Equilibrium Real GDP 648 36.1 The Demand for Money, the Supply of Money, and the Equilibrium Interest Rate 719 36.4 Monetary Policy and Equilibrium GDP 734 36.5 The AD-AS Theory of the Price Level, Real Output, and Stabilization Policy 740 40.2 Trading Possibilities Lines and the Gains from Trade 811 41.1 The Market for Foreign Currency (Pounds) 835 ix www.downloadslide.net IND28 Index Opportunity cost(s), See also Economic costs budget line, choice and, economic (pure) profit and, 182–183 explicit, 181 implicit, 181 law of increasing, 10–11 long run, 183 in marginal-revenue-marginal-cost approach to profit, 221–223 normal profit as cost, 182 short run, 183 in theory of consumer behavior, 146, 148 Opportunity-cost ratio, 808–809 Optimal allocation, in marginal analysis, 11–12, 57–58, 80–81 Optimal amount of R&D, 297 Optimal immigration, 512 Optimal level of social regulation, 431–433 Optimal reduction of an externality, 91–94, 92 Oracle, 565 Organ transplants, 169, 490 Organization for Economic Cooperation and Development (OECD), 416 Organization of Petroleum Exporting Countries (OPEC), 275, 588, 646, 776–777, 805 Other-things-equal assumption (ceteris paribus), in graphical expression, 22–23 income-consumption relationship and, 595–600 Ottaviano, Gianmarco, 509n Outpayments, 833 Output See also Total output in cartels, 274–277 coordination problem in command systems, 36–37 equilibrium real output, 647 impact of immigration on, 505–506 in market systems, 34 in monopolistic competition, 259–261 potential, 578–580 in pure monopoly, 240–243 short-run fluctuations in agricultural, 438–439, 441 Output effect, 318 Outsourcing health care costs and, 483 offshoring, 483, 824 Overconfidence bias, 165 Overt collusion, 275 Ownership of resources as barrier to entry, 237 conflict of interest, 344–345 land, 359–360 private property, 29, 41, 359–360 public, 428, 672–673, 675 restricting business risk to owners, 40, 42 P = ATC See also Average total cost (ATC); Price(s) dilemma of regulation and, 250, 252 as fair-return price, 250 in monopolistic competition, 261 in oligopoly, 279 P = MC rule See also Marginal cost (MC); Price(s) allocative efficiency in pure competition, 225–227 antitrust policy and, 422 dilemma of regulation and, 250, 252 monopolistic competition and, 261 in oligopoly, 279 as socially optimal price, 250 Packaging product differentiation through, 257 size reductions, 167 Panasonic, 246, 276 Pandora, 230 Paper money, 685, 687–689, 703 Paradox of thrift, 602 Paradox of voting, 117–118 Parity concept, 444 criticisms of, 447 purchasing power parity, 520, 836 Parity ratio, 444 Partnerships, 38–39 Part-time workers health care costs and, 483 unemployment rate and, 576–577 Passively managed funds, 752, 761 Patents, 292 as barrier to entry, 236–237, 246 creative destruction and, 230–231 economic growth and, 558, 559 R&D and, 301 Patient Protection and Affordable Care Act (PPACA), 479, 480, 489, 491 alternatives, 496 implementation problems, 494 major provisions, 493–496 objections, 496 Pay for performance, 344–345 free-rider problem and, 83–84, 85 negative side effects of, 345 principal-agent problem, 344 Payoff matrix, 271 PayPal, 565 Payroll taxes, 403–404, 408–409, 412–413, 415 Peak, of business cycle, 574 Pension funds, in U.S financial services industry, 697 Pentagon Federal Credit Union, 697 PepsiCo, 135, 426 Per capita GDP, 520, 553–558 Per capita income, 555 Per se violations, 427 Percentage rate of return, 752 Percentages interest rates as, 361 percentage rate of return, 752 in price elasticity of demand, 123 Perfectly elastic demand, 124, 204 Perfectly inelastic demand, 124 Perfectly inelastic supply, 358 Peri, Giovanni, 509n www.downloadslide.net Index IND29 Permanent legal residents (green card recipients), 500 Perri, Fabrizio, 462n Perry, Katy, 455 Personal consumption expenditures (C), 378–381, 535, 640 Personal income (PI), 540 Personal income tax, 48, 402–403, 412, 415, 640 Personal mandate, 493 Personalized pricing, 251 Per-unit production costs, 643 Petrobras, 246 Pfizer, 293 Philippines, immigration to U.S from, 502 Phillips, A W., 774 Phillips Curve, 774–779 aggregate supply shocks and, 777 disinflation and, 779 long-run, 778–779 nature of, 774–775 short-run, 778 vertical, 778–779 Physicians See also Health care demand for health care and, 485–486 limits to malpractice awards, 492 supply of health care and, 489 Physician’s Health Plan of Michigan, 426 Picasso, Pablo, 343 Picker, Les, 782n Piece rates, 344–345 Pigou, Arthur, 90 Pigovian taxes, 90 Pizza Hut, 426 Planned investment, 616, 618, 620 Planning fallacy, 165 Plant capacity in long run, 183 in short run, 183 Policy issues See also Antitrust policy; Fiscal policy; Government; Monetary policy farm policy, 444–447 pure monopoly and, 246–267 resource pricing and, 313 Political action committees (PACs), 448–449 Political business cycles, 670 Political corruption, 110–111 Political issues business cycles and, 60, 575 in farm policy, 448–449 in fiscal policy, 670 minimum wage, 340–341 special interests, 116, 448–449 Pollution, air, 89, 93, 384 Polypore, 426 Population Bomb, The (Ehrlich), 378 Population growth as an obstacle to economic development, 861–862, 868 birthrates and, 377, 561 resource consumption per person, 378–381 single tax on land and, 360 trends in, 377–378 Pork-barrel politics, 105–106, 112 Portfolio, 751 diversification and, 754–755 market, 756, 757–760 Positive economics, Positive externalities, 88–89, 485 Positive GDP gap, 578–580, 770 Positive net exports, 623–624 Positive relationships See Direct relationships Positive slope, 23 Positive-sum game, 280 Post, 277 Post hoc, ergo propter hoc fallacy, 17 Postrel, Virginia, 41 Potential competition, 246 Potential GDP, 578–580 Potential output, 578–580 Poverty, 464–469 entitlement programs and, 466–469, 508 health care and, 468, 486 human realities of, 859–860 incidence of, 464–465 income inequality and, 455–474 measurement of, 465–466 nature of, 464 trends in, 465, 473 Vicious circle of poverty, 866–867 Poverty rate, 465–466 Prante, Gerald, 414–415, 414n Precommitments, 171 automatic payroll deductions, 171 early withdrawal penalties, 171 salary smoothing, 171 weight-loss competitions, 171 Preemption of entry, 282–283 Preexisting conditions, health insurance coverage for, 493 Preferences consumer, 142 income inequality and, 459 indifference curve, 153–154 limited and bundled choice, 108 paradox of voting and, 117 Preferred provider organizations (PPOs), 492 Prescription drugs, patents and innovation, 559 Present value, 365, 385–386, 747–750 applications of, 749–750 calculating, 385 compound interest, 365, 747–748 in natural resource economics, 384–386 present value model, 748–750 Preset prices, 72–73 Price ceilings, 60–61, 366 black markets and, 61 graphical analysis, 61 rationing and, 61 www.downloadslide.net IND30 Index Price changes on budget line, 153 nominal GDP versus real GDP, 541–545 in oligopoly, 274 Price discrimination, 247–249, 423, 427 conditions for, 247 examples of, 247–248 graphical analysis, 248–249 Price effects, of illegal immigration, 510 Price elasticity of demand, 122–124 applications of, 129–130 determinants of, 128–130 formula for, 123–124 for health care, 485 interpretation of elasticity, 124 total-revenue curve and, 128 total-revenue test, 124–128, 239 Price elasticity of supply, 130–134 applications of, 133–134 immediate market period, 131 long run, 133 pricing power, 133–134 short run, 131–133 Price floors, 62–64 additional consequences of, 63–64 effect of, 62–64 graphical analysis, 62–63 on wheat, 62–64 Price index, 543 Consumer Price Index (CPI), 582, 586 dividing nominal GDP by, 543–544 GDP, 543 Price leadership, 277 Price loss coverage, 451 Price makers, 235, 239, 268, 315 Price supports, 445–446 criticisms of, 447–448 economics of agricultural, 445–446, 450–451 Price takers, 204, 235 pure competition and, 235 resource markets and, 313 Price wars, 274, 277, 526, 650 Price-elasticity coefficient, 123–124 Price-fixing, 172, 427 Price-level stability, 651–652 Price-level surprises, 793 Price(s) See also Equilibrium price level; Inflation; MR = MC rule; Price elasticity of demand; Price elasticity of supply agricultural, 449, 451 in cartels, 274–276 ceilings on, 60–61 change in demand and, 51–52, 58, 69–71 change in prices of other resources, 317–319 change in supply and, 54–55, 58–60, 69–71 consumer choice and, 142 control over, 257 demand shocks and, 521–524 efficiency and, 81–82 equilibrium price level, 56–57, 214–216, 221–223, 647–652, 769 flexible, 521–526 floors on, 62–64 government-set, 60–64 immigration and, 510 importance of, 300 of imported resources, 646 inflexible, 274, 521–526 inverse relationship with quantity, 49 law of demand and, 49 marginal revenue product (MRP), 314 marginal revenue versus, 237–238 in marginal-revenue-marginal-cost approach to profit maximization, 214–216 in market systems, 30, 33–34 money and, 688–689 in monopolistic competition, 259–261 in oligopoly, 268, 274 preset, 72–73 price-level surprises, 793 product differentiation through, 257 in pure monopoly, 235, 238–240, 242, 247–249 rates of return and, 753 rationing function of, 56 in regulated monopoly, 249–252 of related goods, 51–52 relative, 49 resource, 54–55, 313 scalping and, 72–73 short-run fluctuations in agricultural, 438–441 sticky, 274, 521–526 in supply and demand analysis of exports and imports, 813–816 supply shocks and, 522 Pricing power as barrier to entry, 235 elasticity and, 133–134 in pure monopoly, 235, 238–240, 242 Primary markets, 72 Prime interest rate, 729 Principal-agent problem, 104–106, 344–345 Principle of comparative advantage, 809–810 See also Comparative advantage Prisoner’s dilemma, 271 Private bargaining, 90 Private capital, 871–872 Private closed economy, 616 Private goods, 82–83, 115 Private property, 29 land ownership, 359–360 in market systems, 29 Private sector, 103, 108–111 Private transfer payments, 533 Probability-weighted average, 755 Process innovation, 292, 301–302 Procter & Gamble, 167, 278 Producer expectations change in supply and, 55 changes in aggregate demand and, 641 www.downloadslide.net Index IND31 Producer surplus, 79–80, 227, 445 Product attributes, in monopolistic competition, 257 Product demand changes in, 317 elasticity of, 320–321 Product development See Research and development (R&D) Product differentiation, 257 in monopolistic competition, 257 in oligopoly, 268 Product innovation, 292, 299–300 Product markets, 39, 313 changes in product demand, 317 in circular flow model, 39 resource demand derived from, 316–317 Product variety benefits of, 262 in monopolistic competition, 262 Production costs, 180–198 applications and illustrations, 197–198 economic, 182–183 least-cost, 34 long-run, 192–197 in market systems, 33–34 short-run, 183–192, 214, 642 Production possibilities curve, 10, 11 Production possibilities model, 9–13 assumptions of, economic growth and, 13–14, 560–561, 773 economics of war and, 12 future and, 14–15 international trade and, 15 law of increasing opportunity costs, 10–11 optimal allocation and, 11–12 production possibilities curve, 10 production possibilities table, 10 Production possibilities table, 10 Productive efficiency, 57, 80, 225, 243–244, 261–262, 279, 305 Productivity, 646 See also Economies of scale acceleration of, 564–567 aggregate supply and, 646 business cycles and, 575 changes in, 317 in developing countries, 862–863 economic growth and, 565–566 general level of wages and, 330–331 health care prices and, 489–490 labor unions and, 353–355 marginal revenue product (MRP) and, 313–314 real wages and, 331 rent differences and, 359 resource demand derived from, 316–317 role of, 331–332 Productivity growth, 489–490 Professional organizations craft union model for, 337–338 occupational licensing, 98–99, 337, 346 Professional sports teams consumer expectations for, 52 Major League Baseball, 235, 248, 336, 505 monopsony power of, 336 price discrimination and, 248 as pure monopolies, 235, 248 salary caps and deferred compensation, 750 Profit accounting profit, 181 commercial bank, 709 corporate, 538 discrimination and, 471 economic (pure), 182–183, 368–371 income approach to GDP and, 538 increasing returns, 565–566 investment demand and, 607 in market system, 39–40 in monopolistic competition, 260–261 normal profit (See Normal profit) in pure monopoly, 242 resource allocation and, 370–371 sources of, 368–369 start-up firms and, 565–566 via innovation, 299–301 Profit maximization in long run, 221 marginal-revenue-marginal-cost approach, 206–211 in monopolistic competition, 259–261 for nonrenewable natural resources, 386–388 numerical illustration, 322–323 profit-maximizing combination of resources, 322 in pure competition, 205–216, 221 in pure monopoly, 240–243 in short run, 205–216 total-revenue-total-cost approach, 205–206 Profit-maximizing combination of resources, 322 Profit-sharing plans, 345 Progress, in market systems, 35 Progress and Poverty (George), 360 Progressive taxes, 403, 407–408, 416, 665 Property and equipment, commercial bank acquisition of, 704 Property rights economic growth and, 558 excessive present use of natural resources and, 388 fisheries management and, 391–394 forest management and, 389–391 in market systems, 29 Property taxes, 404–405, 412, 415–416 Proportional taxes, 407–408, 665 Proprietary income, 400–401 Proprietors’ income, income approach to GDP and, 538 Prospect theory, 166–167, 166–169 anchoring and credit card bills, 167–168 endowment effect and market transactions, 168 framing effects and advertising, 167 losses and shrinking packages, 167 mental accounting and overpriced warranties, 168 status quo bias, 169 www.downloadslide.net IND32 Index Prosperity abroad, international economic linkages, 624 Protection-against-dumping argument for trade protection, 820 Protectionism, proponents of, 825 Protective tariffs, 817 Prudential, 697 Public assistance programs, 467–469, 508 Public choice theory, 115–118 farm policy and, 448–449 government failure and, 108 majority voting in, 115–117 Public debt, 673–677 external, 675 false concerns, 674 foreign-owned, 675 future generations and, 674 gross domestic product and, 673 interest on, 673–674 international comparisons, 673 money as debt, 687–688 ownership of, 672–673, 675 substantive issues, 674 Public finance, 399–416 apportioning tax burden, 406–409 employment, 406 federal, 402–404, 406 global perspective, 413 government and circular flow, 400–401 government finance, 400–405 local, 404–405, 415–416 nature of, 400–401 state, 404–405, 406, 415–416 tax incidence, 409–412 Public goods, 82–87 characteristics of, 83–84 cost-benefit analysis for, 86–87 demand for, 84–86 externalities and, 88–91 free-rider problem and, 83–84, 85 information failures, 98–100 marginal analysis, 86–87 optimal quantity of, 84 preferences through majority voting, 115 private goods versus, 83–84 Public interest theory of regulation, 428 Public investments, 675–676 Public ownership of natural monopoly, 428 of public debt, 672–673, 675 Public regulation, of natural monopoly, 428 Public sector See also Government in aggregate expenditures (AE) model, 625–628 circular flow model and, 400–401 government purchases, 536, 547, 625–626, 662 income redistribution and, 412, 414–415, 458, 466–469 problems in developing countries, 868–869 quasi-public goods and, 87 resource reallocation and, 87 taxation, 626–628 Public transfer payments, 533 Public utilities deregulation of, 430 as natural monopoly, 428 price discrimination in, 27 as regulated monopolies, 249–252 Public-private complementarities, 675–676 Purchasing power inflation and, 587, 688, 689 money and, 688 stabilizing, 689 Purchasing-power-parity theory, 520, 836 Pure capitalism, 28 Pure competition, 203–216 antitrust law and, 421–423 characteristics of, 203 demand in, 203–204 efficiency and, 225–228 free entry and exit in, 204, 221–223 “invisible hand” and, 36, 104, 228, 359 in long run, 220–231 loss-minimizing case, 208, 210–211 marginal cost and short-run supply, 211–216 price takers in, 204, 235 profit maximization in long run, 221 profit maximization in short run, 205–216 profit-maximizing case, 208 purely competitive labor market, 332–334 in R&D, 303–304 resource demand and, 315–316 in short run, 206–216 shutdown case, 211, 214–215 Pure monopoly, 203, 234–252, 235 barriers to entry, 235–237 characteristics of, 203, 235–237 economic effects of, 243–247 examples of, 235 marginal analysis, 240–243, 243–244, 248–249 monopoly demand, 237–240 objectives of study of, 235 output and price determination, 240–243 price discrimination, 247–249 pricing power in, 28–240, 235, 242 in R&D, 304 regulated monopoly, 249–252 Pure profit See Economic (pure) profit Pure rate of interest, 362 Purely competitive labor market, 332–334 Purposeful behavior, Putin, Vladimir, 378 Putnam, 697 Qualification, information failures, 100 Quality of health care, 482 of labor, role in wage determination, 331 of land, 359–360 www.downloadslide.net Index IND33 of products, gross domestic product and, 545 of resources, productivity changes and, 317 Quantitative easing (QE), 730, 737 Quantity of capital, 562–563 change in productivity and, 317 change in quantity demanded, 52–53, 58 change in quantity supplied, 55, 58–60 equilibrium, 56–57 inverse relationship with price, 49 Quasi-public banks, 690 Quasi-public goods, 87 Quotas in fisheries management, 393–394 immigration, 501 import, 450–451, 817, 819 individual transferable quotas (ITQs), 393–394 for legal immigrants, 501 Race See African Americans; Asians; Hispanics; Whites Railroads deregulation of, 110 regulatory capture, 109 Ramsay, Gordon, 455 Ratchet effect, 650, 663 Rate regulation, 249–252 Rates of return arbitrage and, 753 asset prices and, 753 average expected rate of return, 755, 756 calculating, 752–753 expected, 602–603, 640–641, 755, 756 risk-free, 756–757 Rational, 160 Rational behavior, 142 Rational expectations theory (RET), 791–794, 799 Rational self-interest, purposeful behavior and, Rationing prices and, 56, 61 usury laws and, 366–367 RCS Capital, 357 R&D See Research and development (R&D) Reagan, Ronald, 781, 783 Real capital See Capital Real domestic output, 617 Real estate exchange rates and, 837 subprime mortgage crisis, 693–694, 736–737 Real GDP, 518, 541–545, 543 See also Gross domestic product (GDP) adjustment for price changes, 543–544 economic growth and, 553, 568–569 nominal GDP versus, 541–545 taxation and, 782 Real GDP per capita, 553–558 Real income, 585 Real interest rates, 366, 587, 603, 640 changes in aggregate demand and, 640 inflation and, 587 as nonincome determinant of consumption and saving, 601 Real wages, 330 long-run trend of, 332 productivity and, 331 Real-balances effect, 638 Real-business-cycle theory, 789–790 Recession, 518, 574 See also Great Recession of 2007–2009 in aggregate demand-aggregate supply model, 771–772 in business cycle, 518, 519, 574, 575 decreases in aggregate demand and, 649–651 expansionary monetary policy, 728–730, 733 in extended AD-AS model, 771–772 as obstacle to collusion, 275–276 in the U.S., 574 Recessionary expenditure gap, 628–630 inflationary expenditure gap versus, 631, 632 Keynes’ solution to, 630 Reciprocity strategies, 281–282 Recognition heuristic, 163 Recognition lag, 669–670 Recycling, 414–415 Redistribution of income, 412, 414–415 Refinancing, of public debt, 674 Regressive taxes, 407–408, 416, 665 Regulation See Government regulation Regulatory agency, 109 Regulatory capture, 109–110 deregulation as alternative, 109–110 railroad industry, 109 Relative interest rates, exchange rates and, 837 Relative price, 49 Relative scarcity, 688 Remittances, 507 Renewable natural resources, 385, 389–394 fisheries management, 391–394 forest management, 389–391 Rent economic, 358–360 income approach to GDP and, 538 land, 106, 358–360 Rent controls, 61–62 Rental income, 360 Rent-seeking behavior, 106, 245, 445 Repeated games, 281–282 Replacement rate, 377 Repo, 725 Representative democracy, median-voter problem, 117–118 Required reserves, 692, 704–705, 710–714, 721, 725–726 Resale, lack of, in pure monopoly, 247 Research and development (R&D) as barrier to entry, 246 buyouts, 302–303 economies of scale and, 566 expenditures, 294, 297–299 federal spending for, 306–307 www.downloadslide.net IND34 Index Research and development—Cont imitation, 301 interest and, 366 inverted-U theory of, 304–305 oligopoly and, 278, 279 patents and, 230–231 role of market structure, 303–305 Reserve ratio, 704–705, 710–714, 726 discount rate and, 726 lowering, 725 raising, 725 term auction facility, 692 Reserve requirements, 692, 704–705, 710–714, 721, 725–726 Reserve(s) actual, 705–706 of commercial banks, 704–705, 710–714, 721, 725–726 excess, 705–706, 708 Residual claimants, 368 Residual claimants, 40 Resource allocation See also Resource markets demand in (See Resource demand) economic growth and, 564 global, 451 marginal productivity theory of income distribution and, 325 profit and, 370–371 resource pricing and, 313 supply of energy in (See Energy economics) Resource demand, 312–325 consumption per person, 378–381 determinants of, 316–320 elasticity of, 320–321 marginal productivity theory of income distribution, 325 marginal productivity theory of resource demand, 313–316 optimal combination of resources, 321–323 resource pricing in, 313 Resource markets, 39 See also Interest; Natural resources; Profit; Rent; Resource demand; Supply of resources; Wage determination in circular flow model, 39 MRP = MRC rule and, 314 public sector role in reallocation, 87 resource demand as derived demand, 313 resource prices and, 54–55, 313 Restraints of trade, 422–423 Restrictive monetary policy, 730–731, 734–736 Retained earnings, for R&D, 296 Retirement savings, 171 Revenue tariffs, 817 Reverse repo, 724–725 Reverse wealth effect, 600 Ricardo, David, 631, 807 Right-to-work laws, 352 Risk, 753–755 See also Insurance; Uncertainty of agricultural operations, 442, 443 average expected rate of return and, 755, 756 business, 39–426 comparing risky investments, 755–757 diversification and, 753–755 economic (pure) profit and, 368 exchange-rate, 848 government role in reducing private-sector risks, 103 income inequality and, 459 interest-rate, 361 international investment risks, 755 in market system, 39–42 restricting to owners, 40, 42 risk-free rate of return, 756–757 Security Market Line and, 757–760 shielding employees and suppliers from, 39–42 shocks and, 521–524 types of, 368 Risk premium, 757 Risk-free interest rate, 756–757 Security Market Line and, 757–760 Ritter, Joseph A., 547n Ritter, Lawrence S., 795n Rivalry, 83 Rivlin, Alice M., 569n Roman Empire, 519 Romer, Christina, 782, 782n Romer, David, 782, 782n Royal Bank of Scotland, 692 Royal Dutch/Shell, 246 Royalties, 344–345 Rule of 70, 553, 582 Rule of reason, 424, 425, 427 Russia command system in, 28, 36–37 population decline in, 377 U.S trade with, 439–441 Saffer, Henry, 130n Sahay, Ratna, 590n Salary caps, present value and, 750 Salary smoothing, 171 Sales taxes, 404, 408, 413, 415 Salmon, market for, 70 Samsung, 246, 279 Saving schedule, 598–600 other considerations, 601 shifts in, 601 Savings, 520 average propensity to save (APS), 598–599 in equilibrium GDP, 620 income and, 595–600 marginal propensity to save (MPS), 608–611 multiplier and, 608–611 nonincome determinants of, 600–602 paradox of thrift, 602 personal, 297 taxation and, 780 Savings accounts, 686 Savings and loan associations (S&Ls), 686, 697 Savings deposits, 686, 714 www.downloadslide.net Index IND35 Say, J B., 631 Say’s law, 631 Scale constant returns to, 195–197 diseconomies of, 195 economies of, 193–195 minimum efficient, 195–197, 244–245 Scalping, 72–73 Scarce resources, Scarcity, economic growth and, 553 economic perspective and, economic resources and, marginal analysis and, relative, 688 Schneider, Friedrich, 546n Schumpeter, Joseph, 230, 230n Scientific method, Seacrest, Ryan, Search unemployment, 577 Secondary markets, 72 Secondhand sales, exclusion from GDP, 533 Securities firms, in U.S financial services industry, 697 Securitization, 694, 695 Security Market Line (SML), 757–760 Self-control problems, 170–171 Self-correction of economy, 791–794 mainstream view of, 793–794 new classical economics view of, 791–793 Self-interest, 29–30, 36 Self-selection, 505 immigration and, 58, 505 negative, 508 Self-serving bias, 165 Self-sufficiency output mix, 809 Seniority, labor unions and, 352 September 11, 2001, terrorist attacks, 12, 652, 670, 797 Sequential game, 282–284 Service economy, 535 Service Workers, 351 Services, 535 business cycles and, 575–576 private (See Private goods) product differentiation through, 257 public (See Public goods) Shadow banking system, 694 Shadow heuristic, 163 Sharp, 427 Sherman Act of 1890, 422–423, 425 Shierholz, Heidi, 473n Shirking, 195 Shocks, 521–522 demand, 521–526 expectations and, 521–524 importance of, 521–522 supply, 522, 777, 788 Short run, 131–132, 183, 768–769 aggregate supply in, 642–647, 768–769 agricultural price and income instability in, 438–441 fixed plant in, 183 law of diminishing returns and, 183–186 Phillips Curve in, 778 price and output in monopolistic competition, 259 price elasticity of supply and, 131–132 production costs in, 183–192, 214, 642 production relationships in, 183–186 profit maximization in pure competition, 205–216 pure competition in, 206–216 Shortage, 56 Short-run aggregate supply curve, 643, 768–769 Short-run supply curve, 213 Shutdown case, 211, 214–215 Silber, William L., 795n Simple multiplier, 640, 661 Simultaneous consumption, 244, 566 Simultaneous game, 280 Singapore, health care in, 495 Single seller, in pure monopoly, 235 Single-tax movement, 360 Size of firm long-run production costs and, 192 in oligopoly, 286 Skill transferability, 504 Slope of a nonlinear curve, 24 Slope of a straight line, 23 infinite, 23–24 marginal analysis and, 23 measurement units and, 23 negative, 23 positive, 23 zero, 23–24 Small business See Entrepreneurs; Start-up firms Smith, Adam, 36, 104, 146, 172, 359, 807, 807n Smith Barney, 696 Smoot-Hawley Tariff Act of 1930, 821 Snyder’s of Hanover, 46 Social insurance programs, 466–467 Social regulation, 421, 430–434 characteristics of, 430–431 criticisms of, 433 industrial regulation versus, 431 nature of, 430–431 optimal level of, 431–433 regulatory commissions, 431 support for, 431, 433 Social Security adjustment of benefits for inflation, 582 adverse selection problem, 100 financing, 403–404, 408–409 payroll taxes, 412–413, 415 shortfalls in, 676–677 as social insurance, 466–467 unfunded liabilities, 106–107 Social Security Trust Fund, 676–677 www.downloadslide.net IND36 Index Socialism See Command systems Socially optimal price, 250, 252 Society, economizing problem of, Sociocultural obstacles, in developing countries, 865–866 Solar City, 170 Sole proprietorships, 38 Solyndra, 110 South Korea international trade, 806 market system in, 37 Soviet Union, former See also Russia command system in, 28, 37 Special interests farm policy and, 448–449 logrolling and, 116, 448–449 nature of, 116 rent seeking and, 106 special-interest effect, 105–106 Special-interest effect, 105–106 Specialization, 31 comparative advantage and, 809–810 division of labor and, 31 gains from, 824 geographic, 31 labor, 194, 824 managerial, 194–195 in market systems, 31 occupations of immigrants and, 461, 501–502 offshoring and, 824 Specialized inputs, 566 Specific excise tax, 413 Speculation in currency markets, 848 in determination of exchange rates, 837 Sports See Professional sports teams Spotify, 230 Sprint, 426 SSI See Supplemental Security Income (SSI) Stagflation, 777 Standard Oil, 246 Standard Oil case, 423 Standard & Poor’s 500 Index, 751 Standardization, in pure competition, 203–204 Staples, 426 Starbucks, 198, 230, 283 Start-up firms, 565–566 See also Entrepreneurs economic growth and, 565–566 forming, 295 information technology, 565 life expectancy, 230 productivity acceleration and, 565–566 successful, 198 technological advance and, 228–231 State banks, 691 State government employment in, 406 finances in U.S., 404–405, 415–416 fiscal impact of immigration and, 510 fiscal policies of, 670–671 lotteries, 405, 749–750 State of Working America, The, 473 State taxes, 404–405, 415–416 Statistical discrimination, 471 Status quo, 166 Status quo bias, 169 Steam engine, 554 Steering heuristic, 163 Sterilization, 842 Sticky prices See Inflexible (“sticky”) prices Stock exchanges, 48 Stock market bubbles and, 667 crash of 1929, 17 exclusion from GDP, 533 Stock options, 345 Stock(s), 750 bonds versus, 751 corporate stockholders, 370–371 exchange rates and, 837 as investment, 750–751 limited liability rule, 750–751 Store of value, 684, 687–689 Strategic behavior, 268 Street entertainers, 84 Strikes, 353–354 Structural adjustment, 527 Structural unemployment, 577–578 Structuralists, 424 Student loans, 62–63 Subgame, 283 Subgame perfect Nash equilibrium, 284 Subprime mortgage loans, 693–694, 736–737 Subsidies, 647 agricultural, 444, 447 change in supply and, 55 for consumers, 90 in correcting for positive externalities, 90–91 criticisms of, 447–448 export, 817 as government intervention, 90 government provision, 90 for suppliers, 90, 444 tax subsidies for health care, 487 Substitute goods, 51, 134 ATMs, 324 change in demand and, 52 change in supply and, 55, 56 ease of resource substitutability, 320 lack of, in pure monopoly, 235 marginal rate of substitution (MRS), 154 prices of, 51–52 substitutability and price elasticity of demand, 128 Substitute resources, 57, 318 Substitution effect, 49, 145, 318 www.downloadslide.net Index IND37 Sugar Program, 450–451 Sun Microsystems, 505 Sunk cost fallacy, 189 Sunstein, Cass, 173n Supermarket behavior, neoclassical versus behavior economics explanations, 161–162 Superstars, 317 Supplemental Nutrition Assistance Program (SNAP), 467, 468 Supplemental Security Income (SSI), 467, 468, 508 government role in promoting, 689, 788–789 monetary policy and, 689, 788–789 of purchasing power of money, 689 self-correction of economy, 791–794 shifts in income and savings schedules, 601 sources of macroeconomic instability, 788–789 Supply, 53–56 See also Market supply aggregate (See Aggregate supply) change in demand and, 69–71 change in quantity supplied, 55, 58–60 change in supply, 54–55, 58–60, 69–71, 214, 363 determinants of, 54, 55 inelastic, 358 law of supply, 53–54 of loanable funds, 363 market supply, 54 price elasticity of, 130–134 resource (See Supply of resources) restricting agricultural, 446 short-run, 211–216 supply curve, 54 Supply curve, 54 labor, 332, 341 lack of, in pure monopoly, 240–242 reaction to demand shifts, 72 upsloping versus vertical, 71–72 Supply factors, 559 economic growth and, 559 health care, 489–491 Supply of resources, 377–381 energy economics, 378–381 environmental quality and, 394–395 increase in, 13–14 natural resource economics, 385–389 population growth and, 377–378 renewable resources, 389–394 resource consumption per person, 378–381 Supply schedule, 53 Supply shifters, 54 Supply shocks, 522, 777, 788 Supply-side economics, 779–783 incentives to save and invest, 780 incentives to work, 780 Laffer Curve and, 780–781 Supply-side market failures, 77 Surplus, 56 balance-of-payments, 844 budget, 663 producer, 445 reduction of agricultural, 446–447 Surplus payment, land rent as, 359 Sushi, market for, 71 Swift, Taylor, Switzerland, as magnet country for immigration, 502 Systematic errors, 160 T Rowe Price, 697 TAC (total allowable catch), 392–393 Taco Bell, 140, 426 Taft-Hartley Act of 1947, 353 TANF (Temporary Assistance for Needy Families), 99, 467, 468 Target, 277 Target rate of inflation, 796 Tariffs, 817–819 direct effects, 818 economic impact of, 818–819 indirect effects, 818–819 international economic linkages, 624–625 net costs of, 819 Taste-for-discrimination model, 469–471 Tastes change in demand and, 50–51, 52 in determination of exchange rates, 836 in market systems, 35 Tax credit, 416, 467, 469 Tax Freedom Day (U.S.), 401 Tax incidence, 409–412 division of burden, 409–410 elasticity and, 410–412 in the U.S., 412–416 Tax subsidy, 487 Taxable income, 402–403 Taxes and taxation aggregate supply and, 780–781 apportioning tax burden, 406–409 changes in aggregate demand and, 641 changes in supply and, 55, 56 clipping coins in, 584 corporate, 404, 408, 413, 415, 538, 605, 647 earned-income tax credit (EITC), 467, 469 efficiency loss of tax, 411–412 elasticity of tax incidence, 410–412 equilibrium GDP and, 626–628 excise, 129–130, 404, 413, 415 federal tax revenues, 402–404, 411–412 fiscal policy and increase in, 663–664 fiscal policy and reduction of, 662 as government intervention, 90 health-insurance coverage and, 494, 496 incentives and, 780 incidence of U.S taxes, 412–416 income distribution and, 412, 414–415, 458 interest rates and, 362 Laffer Curve and, 780–781 marginal tax rate, 403, 780 www.downloadslide.net IND38 Index Taxes and taxation—Cont negative externalities and, 90, 412 payroll, 403–404, 408–409, 412–413, 415 personal, 402–403, 408, 412, 415, 640 on production and imports, 538 progressive, 402–403, 407–408, 416, 665 property, 404–405, 412, 415–416 proportional, 407–408, 665 public debt and, 674 public sector, 626–628 real GDP and, 782 regressive, 407–408, 416, 665 sales taxes, 404, 408, 413, 415 shifts in income and savings schedules, 601 shifts in investment demand curve and, 605 single tax on land, 360 specific taxes, 90, 412–413, 415 state taxes, 404–405, 415–416 supply-side economics, 780–781 Tax Freedom Day (U.S.), 401 tax structure in U.S., 414, 416 underground economy and, 545 value-added, 409 Taxes on production and imports, 538 Taylor rule, 731–732 TD Ameritrade, 697 Teamsters Union, 351, 697 Technological advance, 292 efficiency and, 305–307 modern view of, 294 Technology See also Innovation advances in, 14, 35, 228–231, 245–246, 279, 317, 331, 441, 490–491, 558, 562, 565–566 agricultural supply increases and, 441 changes in aggregate demand and, 641 changes in supply and, 55 competition and, 228–231 in developing countries, 865 economic growth and, 14, 558, 565–566 health care prices and, 490–491 impact of 3-D printers, 196–197 industrial regulation in perpetuating monopoly, 429 in market systems, 31, 35 oligopoly and, 279 in production possibilities model, productivity changes and, 317, 565 pure monopoly and, 245–246 role in wage determination, 331 shifts in investment demand curve and, 605 Temporary Assistance for Needy Families (TANF), 99, 467, 468 Temporary legal residents, 500 Temporary workers in developing countries, 870 health care costs and, 483 Tennessee Valley Authority (TVA), 428 Term auction facility, 692 Terminal node, 283 Terms of trade, 810 comparative advantage and, 810 flexible exchange rates and, 838 Terrorist attacks of September 11, 2001, 12, 652, 670, 797 Thaler, Richard, 160, 168, 173n Theory of Moral Sentiments, The (Smith), 172 Third-party payments, health care, 485, 491 3-D printers, 196–197 Thrift institutions, 686 in Federal Reserve System, 691–692 required reserves of, 721 in U.S financial services industry, 697 TIAA-CREF, 696, 697 Ticket scalping, 72–73 Till money/vault cash, 704 Time duration of unemployment, 581 ease of resource substitutability, 320 income distribution over, 460–462 income inequality and, 460–462 income mobility and, 457–458 lags in, 302 marginal utility and, 146, 148 price elasticity of demand and, 129 price elasticity of supply and, 131–133 specialization and, 31 supply-side economics and, 781 in theory of consumer behavior, 146, 148 timing problems in fiscal policy, 669–670 Time deposits, 686 Time inconsistency, 170–171 Time preference, 756–757 Time Warner Communications, 426 Time-value of money, 364–365 applications, 749–750 compound interest, 364–365, 747–748 future value, 365 present value, 365, 385–386, 747–750 Tobacco subsidies, 448 Todaro, Michael, 859–860, 859n Token money, 685 Topel, Robert, 483 Topographical maps, indifference maps and, 156 Total allowable catch (TAC), 392–393 Total cost (TC), 187–188 average total cost (ATC), 189 graphical expression of, 209, 210 in market systems, 33 ratio of resource cost to, 321 short-run production, 187–188 Total demand See Demand curve; Demand schedule; Market demand Total fertility rate, 377, 568–569 Total money demand, 718 Total output See also Gross domestic product (GDP); Output interest and, 365–366 Total product (TP), 183 www.downloadslide.net Index IND39 Total revenue (TR), 124, 204 graphical expression of, 204, 209, 210 in market systems, 33 price elasticity and, 128 total-revenue test for price elasticity, 124–128, 239 Total supply See Market supply; Supply curve; Supply schedule Total utility, 140 income equality in maximizing, 462–463 marginal utility and, 140 Total-revenue test, 124–128 Total-revenue-total-cost approach, 205–206 Toyota, 246, 279, 354, 532 Trade Adjustment Assistance Act of 2002, 824 Trade barriers, 817–819 net costs of, 819 trade barrier wars, 821 types of, 817–819 (See also Import quotas; Tariffs) Trade deficits, 805, 832 causes of, 846–847 implications of, 847 increased current consumption, 846 of the U.S., 846–847 Trade expansion, with developing countries, 869–870 Trade secrets, 302 Trade surplus, 805, 832 Trade unions See Labor unions Trademarks, 302 Trade-offs, Trading possibilities line, 810–812 Tragedy of the commons, 393 Training See Education and training Transactions demand for money, 718 Transfer payments, 401 See also Income distribution exclusion from GDP, 533 noncash transfers, 458 public debt as, 674 public versus private, 533 Treasury bills, 673 Treasury bonds, 673 Federal Reserve purchases of, 721 Federal Reserve sale of, 724–725 Treble damages, 422 Tropicana, 167 Troubled Asset Relief Program (TARP), 695 Trough, of business cycle, 574 Trucking, deregulation of, 110 Trusts, 422, 424 Truth in Lending Act of 1968, 371 Truth in Savings Act of 1991, 371 Tuition, 62–63 Tying contracts, 423, 427 Tyson, 438 Uber, 58 Ultimatum game, 174–175 Unanticipated inflation, 585 Unattainable combinations, Uncertainty See also Risk flexible exchange rates and, 838 shocks and, 521–524 Unconditional cash transfers, 873 Underemployment, in developing countries, 863 Underground economy See also Taxes and taxation exchange controls and, 843 gross domestic product and, 545 price ceilings and, 61 Undistributed corporate profits, 538, 540 Unemployment, 13–15, 518, 576–581 cyclical, 578, 649–651 definition of full employment, 578 in developing countries, 863 downward wage inflexibility and, 577 economic cost of, 578–581 education and, 581 gender and, 581 Great Recession of 2007–2009 and, 580, 589 immigration and, 508 inflation and, 774–777 measurement of, 576–577 minimum wage and, 340–341 noneconomic costs of, 581 in production possibilities model, 13 structural, 577–578 trends in, 777 types of, 577–578 unequal burdens, 580–581 union wage increases and, 338 in the U.S., 519, 576–577 Unemployment compensation, 458, 467 Unemployment equilibrium, 790–791 Unemployment rate, 576–577 Unfunded liabilities, 106–107 Uninsurable risks, 368–369 Union shop, 352 Unionization rate, 351 Unions See Labor unions Unit elasticity, 124, 126 Unit of account, 684 United Autoworkers, 351 United Kingdom Bank of England, 108, 690 modern economic growth and, 556–558 national health insurance, 488–489 United States dollar See also Exchange rate(s) economic growth measures and, 519–520 purchasing power of, 688 United States economy See also Federal government agriculture in, 437–441, 441–447 balance of payments, 831–834 business cycles in, 573 capital-intensive goods, 806 circular flow model and, 400–401, 540–541, 542 commercial banks in, 691–692 comparative advantage, 806 www.downloadslide.net IND40 Index United States economy—Cont covert collusion in, 275–276 economic growth in, 553–558, 564–567, 589 economics of war and, 12, 652, 670 energy economics in, 381–383 Environmental Performance Index (EPI), 394–395 export supply, 814–815 fastest-growing occupations, 319 federal finances in, 402–404 fiscal policy in, 665–677 fisheries management in, 391–394 forest management in, 389–391 gasoline market in, 60–61, 70–71, 98 general level of wages in, 330–331 Great Depression and, 13, 17, 525, 527, 574, 616, 625, 631, 693, 787, 821 Great Recession of 2007–2009 (See Great Recession of 2007–2009) gross domestic product (GDP) of, 518, 519–520 health care in, 408–409, 479–496 immigration and, 500–512 impact of taxes and transfer payments in, 458 imports of, 439–441 income distribution in, 372, 460–462, 466–469, 473, 506 income shares in, 372, 506 inflation in, 583, 589 international trade and, 439–441, 448–449, 805 (See also International trade) labor unions in, 336–338, 351–355 local finances in, 406 as magnet for immigration, 502, 506 market system in, 29 minimum wage, 340–341 monetary policy in, 736–739 monopsony in, 336 mortgage default crisis, 736–737 multilateral trade agreements, 822–824 North American Free Trade Agreement (NAFTA), 511, 566, 823 offshoring of jobs and, 824 opportunity-cost ratio, 808 poverty measures in, 465–466 productivity acceleration and, 565–566 public sector, 625–628 rapidly-declining populations, 319–320 recent and projected fiscal policy, 667–669 recent monetary policy, 736–739 recessions in, 574 specialization and, 84 state finances in, 404–405, 406, 415–416 supply and demand analysis for international trade, 813–816 taxes in, 412–416 terrorist attacks of September 11, 2001, 12, 652, 670, 797 trade adjustment assistance, 824 trade deficits, 846–847 trash generation, 381 unemployment in, 519, 576–577 water use in, 379 wealth distribution in, 459, 473 U.S Bureau of Economic Analysis (BEA), 547 U.S Bureau of Engraving and Printing, 685, 702 U.S Bureau of Labor Statistics, 576 U.S Census Bureau, 456, 502, 547 U.S Department of Agriculture (USDA), 441, 446 U.S Department of Commerce, 451, 547, 831 U.S Department of Energy (DOE), 110 U.S Environmental Protection Agency (EPA), 431, 433–434 U.S Federal Communications Commission (FCC), 237, 428 U.S Federal Trade Commission (FTC), 422 U.S Food and Drug Administration (FDA), 109, 431, 433–434 U.S government securities, 672 assets of Federal Reserve Banks, 720–721 liabilities of Federal Reserve Banks, 721 open-market operations and, 721–725 purchase by commercial banks, 708–709 U.S Justice Department, 422, 432 U.S Mint, 685, 702 U.S Office of Personnel Management, 547 U.S Postal Service, 230, 246, 428 U.S savings bonds, 672 U.S Securities and Exchange Commission (SEC), 109 U.S Steel case, 424 U.S Supreme Court, 424 U.S Treasury Department, 672 United Steelworkers, 351 Unlimited wants, Unplanned changes, 620–621 Unrelated goods, 52 Upsloping supply curve, 72 Uruguay Round, 822 U.S Department of Agriculture, 112 User cost, 386 Usury laws, 366–367 Utility, 3, 140 marginal utility (See Marginal utility) purposeful behavior and, total utility, 140, 462–463 Utility maximization, 139–148 law of diminishing marginal utility, 140 theory of consumer behavior, 142–144 Utility-maximizing rule, 142–143 algebraic generalization, 144 demand curve and, 144–145 numerical example, 142–143 Utz Quality Foods, 426 Vale Canada Limited, 237 Value added, 533 Value judgment, www.downloadslide.net Index IND41 Value-added tax (VAT), 409 Vanguard, 697 Variable costs (VC), 187 average (AVC), 188–189 short-run production, 187 Variables dependent, 22 independent, 22 Variety, in monopolistic competition, 262 VAT (value-added tax), 409 Vault cash, 704 Végh, Carlos, 590n Velocity, of money, 788–789 Venture capital, for R&D, 296–297 Verizon, 278 Verson stamping machine, 198 Vertical axis, 21 Vertical intercept, 24 Vertical mergers, 426–427 Vertical Phillips Curve, long-term, 778–779 Vertical supply curve, 72 Very large numbers, 203 Very long run, 293 Vicious circle of poverty, 866–867 Visa card, 687 Voice mechanism, 355 Voluntary export restriction (VER), 817 Voting See Majority voting Wachovia, 695 Wage contracts, 650 Wage determination, 329–346 average wage of selected occupations, 340 bilateral monopoly model of, 339 downward wage inflexibility and, 794–828 education and, 342–343 general level of wages, 330–331 global perspective on wages of production workers, 330 immigration and, 505–506, 510 labor unions and, 336–338, 351–355 minimum-wage controversy in, 340–341 monopsony model of, 334–336 pay for performance, 83–84, 344–345 prejudice and market African-American-White wage ratio, 470 productivity and, 331 in purely competitive labor market, 332 wage differentials, 340–344 Wage differentials, 340–344 compensating, 510 marginal revenue productivity, 342 market imperfections, 343–344 noncompeting groups, 342–343 Wage effects, of illegal immigration, 510 Wage growth, health care costs and, 483 Wage rates, 330 impact of immigration on, 505–506 labor unions and, 338, 344, 352 Wage(s) See also Wage determination changes in productivity, 317 efficiency, 345, 650, 794 fringe benefits, 334 general level of, 330–331 labor unions and, 352 long-run trend of, 332 minimum, 340–341, 651 real, 331 unemployment and union wage increases, 338 Wagner Act of 1935, 353 Wait unemployment, 577 Walgreen, 283 Wall Street Reform and Consumer Protection Act, 696–697 Walmart, 39, 230, 277, 283, 357 Walt Disney Company, 278, 426 Wannamaker, John, 162 War See also National defense economics of, 12, 652, 670 price wars, 274, 277, 526, 650 Warranties, overpriced, mental accounting and, 168 Washington Mutual, 695, 696 Water, use of, 379 Watt, James, 554 Wealth aggregate demand and, 640 changes in aggregate demand and, 640 household, 600 as nonincome determinant of consumption and saving, 600 unequal distribution of, 459, 473 Wealth effect, 600, 640 Wealth of Nations, The (Smith), 36, 172 Weight-loss competitions, 171 Welfare cliff, 468 Well-being, noneconomic sources of, 546 Wells Fargo, 692, 695, 696, 697 Wendy’s, 264 Wendy’s, 100 Western Union, 235 Wham-O, 235 Wheat, price floors on, 62–64 Wheeler-Lea Act of 1938, 423 Whirlpool, 276 Whites African-American-White wage ratio, 470 poverty among, 465 unionization rate, 351 Whole Foods Markets, 495 Will to develop, 865 Williams, Raburn, 590n Winner-take-all markets, 317 Women crowding model and, 471–472 economic growth and, 562 in the labor force, 562 www.downloadslide.net IND42 Index Women—Cont poverty among, 465 unemployment and, 580 unions and, 351 Work rules, 353 World Bank, 871 World Health Organization (WHO), 495 World price, 813–814, 816 World Trade Organization (WTO), 449, 566, 822–823 WorldCom, 426 X-inefficiency, 244, 245, 429 Yahoo!, 505, 565 Yale University, Environmental Performance Index (EPI), 394–395 Yum! Brands, 426 Zero inflation, 590 Zero interest rate policy (ZIRP), 737 Zero lower bound problem, 738–739 Zero slopes, 23–24 Zero-sum game, 280 Zimbabwe, hyperinflation in, 590 ZIRP (zero interest rate policy), 737 Zuckerberg, Mark, ... of Microeconomics, Principles of Macroeconomics Third Edition Karlan and Morduch Economics, Microeconomics, and Macroeconomics Second Edition McConnell, Brue, and Flynn Economics, Microeconomics,... Gebhardt Essentials of Economics Tenth Edition PRINCIPLES OF ECONOMICS Asarta and Butters Connect Master: Economics First Edition Colander Economics, Microeconomics, and Macroeconomics Tenth Edition.. .Economics PRINCIPLES, PROBLEMS, AND POLICIES THE MCGRAW-HILL SERIES: ECONOMICS ESSENTIALS OF ECONOMICS Brue, McConnell, and Flynn Essentials of Economics Third Edition Mandel M: Economics,